You spend a lot of time and energy winning over new business, and once you’ve gotten that prospect to convert, you work hard to create a positive customer experience.

Rather than going out and trying to find brand new customers all over again, it’s much more time- and cost-effective to turn to the customers you already have, not only for repeat business, but to create a steady stream of referrals when they pass you name along to their friends.

It helps to establish a concrete plan for generating these referrals from your existing customers. This is why establishing an effective referral program is so important. We’ll take a look at what a referral program is, why you need one, and how to get the most out of the program you create.

What is a Referral Program?

A referral program is a systematic approach to generating referrals. This is a broad term that can encompass any number of tactics that you use to encourage and gather referrals, either from existing customers or partner businesses.

Know Your Customer

The first step to creating an effective referral program is really understanding your existing customer. What do they like about your business? What keeps them coming back? When you understand their wants, needs, and behaviors, you can create a referral program that draws them in and encourages them to refer their friends.

Fortunately for you, today’s tech-filled world provides marketers and business owners with a myriad of tools to track customers’ behaviors and solicit input through various online channels. The first step is to decide what you’re hoping to get out of your referral program, and the next step is to turn to the data.

Data can help you see what’s really important to your existing customers and who your best customers are. You should create a referral program that’s centered around what your best customers want. Once you’ve identified these best customers through your data analysis, don’t be afraid to reach out to them with a survey to get their input on how you plan to structure your referral program. After all, if they’re your top customers they’ll likely be the ones who are taking advantage of the program by sharing your name with their friends!

Create a Customer Reward Program

An often-used technique in building a referral program is offering a reward to customers who refer your business. There are a number of different ways to go about creating a customer referral program, but all good programs have some key elements.

• Offer a reward your users want. This might be a discount on their next purchase, a gift card, or access to a special good or service that other users don’t get. It doesn’t have to be an expensive offer, but it does have to be something that your customers will find useful.
• Double the reward. Customer referral programs are even more effective when you make an offer both to the referrer and referee. Dropbox very famously did this, offering additional free storage to anyone who referred them and to their friends who signed up as a result of the referral, and this approach led to exponential growth for the company.
• Be transparent about your offering. Customers don’t want to feel like they’re being bribed into saying something nice about you or passing your name along. Make sure that the terms and conditions of participation are clear and simple, and display them prominently on your website. Not only will this likely lead to customers you hadn’t expected participating in the program, it also gives customers a sense of ease.
• Make it easy. If your rewards program is hard to find out about or difficult to sign up for, then what good is it to you or your customers? Trumpet your referral program on your website, via email, and on social media, and be sure you’re up front about the terms of participating. Make the criteria for joining the program easy to understand, and make the sign up process as simple as possible.

When you create an effective customer referral program, you can more easily create referral champions: enthusiastic customers who will refer your business over and over again!

Encourage Online Reviews

When you think of online reviews, you may feel that it only applies to businesses in certain industries, particularly those businesses that are B2C. The fact is, though, that in today’s online world every business should be concerned with gathering reviews online.

More than 90 percent of consumers look to online reviews for guidance before making a purchase. If you’re not being reviewed online prospects might not even know you exist, or they might write you off as illegitimate because of a scant online presence. Not only that, but your online reviews factor into your SEO ranking, so if you’re not gathering reviews, then Google doesn’t notice you, either.

Include links to your online review pages in follow-up emails to customers, asking them for feedback on their purchase. Of course, part of soliciting reviews is knowing how to deal with unfavorable ones. It’s actually okay to have a few bad reviews—otherwise prospects begin to worry that your “reviews” are all from shills—but you do need to directly address complaints in a timely, considerate, and appropriate manner.

Engage Other Business Owners

The only thing better than building a referral program on your own is building a referral program with another small business owner. As a fellow entrepreneur, they face the same challenges and have the same goals. Why not team up to divide and conquer in your efforts to build a referral base? Finding business owners who have a similar customer profile to yours allows you to tap into their existing network—and vice versa—so that you can double your pool of prospects overnight.

These strategic partnerships work best when the business owner is someone you yourself know and trust; you’ll be recommending their business to your valued customers, so you want to be sure they’ll be providing the same excellent level of service your clients have come to expect from you.

Reevaluate Your Approach

It’s no small feat to get a referral program up and running, but once you’ve established your program your work is far from over! You want to track the results of your program and make changes as appropriate.

Keep track of where your prospects are coming from. Are they finding you through online reviews on Facebook or Yelp? Are they coming directly through your customer referral program? Did a current customer forward them your email newsletter? Has your partnership with another local business resulted in conversions? Understanding how people are finding you allows you to adjust your program accordingly.

If your customer referral program hasn’t taken off, maybe it means you need to market it more effectively. Send an email blast out to existing customers letting them know about it, and include a link in your email signature for people to refer a friend. Or perhaps it’s an issue with the reward; try making a different offer in the coming months and see if your numbers pick up.

You’ll also want to monitor your customer acquisition costs. Hopefully your referral program is driving those costs downward; it should be costing you less to acquire customers via referrals than it would be to go out and approach an entirely new cohort through outbound marketing tactics. If you’re seeing your costs rise or stagnate, that’s another sign that you need to revisit your approach. Perhaps the reward that you’re offering is too costly for you to take on, or maybe your strategic partner’s business is not as well aligned with your business as you had hoped, and you’re not getting the proper number of referrals from that relationship.

Building an effective referral program doesn’t happen overnight. You first have to understand your existing customers—what they want and need—and then build a program that encourages them to spread the good word about your products or services. And then there’s the work of maintaining the program, checking in on your results and making changes along the way. It take some effort, but when you land on an approach that’s effective and generates repeat results, you’ll feel a great sense of accomplishment and see the benefits in your bottom line.